Bump mapping vs Displacement (plus displacement nodes in Cycles)?
Question 1: How does the Displacement input of the Material Output node work?


Depends what feature set you are using for rendering:


In Supported feature set it does Bump mapping, same as plugging Bump node into all your shaders.
In Experimental feature set is follows what you set in the Material properties:



So for True Displacement you need to set the feature set to Experimental, and set a setting for the Material. More on this here:

Blender Cycles True Displacement



  Question 2: In the documentation (2.79) two nodes are expected to be connected to the Material Output node: Displacement and Vector Displacement.


The documentation is continuous work in progress and does not adhere to any specific Blender version. There might be sections outdated or put beforehand of features that will come in future, like in this case Vector displacement.